1H17 core earnings of SGD30m.

Sembcorp Marine’s 1H17 revenue came in lower by 23% at SGD1.4bn, due to lower work orders across all segments, its lowest recorded revenue since 2006.

Net profit came in at SGD45m, and after stripping one-off items, core profit came in at SGD30m for 1H17.

On a quarterly basis, Sembcorp Marine is back in the black compared to 1Q17, when it recorded a core loss of SGD17m. The outflow of cash from operations came in at SGD247m, due to increased payment to creditors.

Capex spending for 1H17 came in at SGD98m, which should trend lower going forward, as most of the capex for its yards has been expended.

Orderbook of SGD3.6bn.

The current orderbook for Sembcorp Marine stands at SGD3.6bn, compared to SGD4bn at end-1Q17, with projects across drilling and non-drilling solutions. YTD, the company has secured SGD75m of orderbook replenishment coming from offshore platforms and the floating solution segment.

The orderbook of SGD3.6bn has excluded Sete Brasil drillship contracts which are valued at SGD3.1bn, as that project has been postponed for the time being. We estimate the company would be able to at least add another SGD500m to its orderbook in FY17.

Outlook.

As oil prices continue to trade in the USD50-55.00/bbl band, demand for drilling solutions is weak to almost non-existent.

On a more encouraging note, Sembcorp Marine mentioned that enquiries for non-drilling solutions, offshore platforms and floaters have started to pick up.

The International Maritime Organisation has deferred the requirement for ballast water treatment by two years, which would affect Sembcorp Marine’s ship conversion and repair revenue. However, the company is reporting an uptick in LNG and cruise ship repairs and upgrades.

Current projects at local yards, a semi-sub crane vessel, floating systems, as well as work at its overseas yards would keep the company busy in the near term.

We expect orderbook replenishment to continue to be slow in FY17 and could start to pick up in FY18, if the oil price continues to stabilise.

Maintain NEUTRAL.

We expect Sembcorp Marine to be able to play catch up in 2H17 with its projects in hand, hence we are keeping our earnings forecasts unchanged.

Our TP of SGD1.65 is based on 1.3x FY17F P/BV, its average P/BV before the crude oil price rally in the early 2010s.

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